Teva Reports First Quarter 2013 Results

Teva Reports First Quarter 2013 Results

Net Revenues Total $4.9 Billion

Non-GAAP Diluted EPS of $1.12; GAAP Diluted EPS of $0.74

Cash Flow from Operations of $1.1 Billion

JERUSALEM--(BUSINESS WIRE)-- Teva Pharmaceutical Industries Ltd. (NYS: TEVA) today reported results for the quarter ended March 31, 2013.

"During the quarter, we were pleased by the overall performance of our specialty products and results of our OTC joint venture. Our generic operations, which are a core component of our business, performed in line with our expectations and were particularly strong in Western and Eastern Europe," stated Dr. Jeremy Levin, Teva's President and Chief Executive Officer. "Over the past year, we have executed on the strategic plan which we articulated in December and with the recent addition of some key leadership appointments, we now have an organizational structure in place which supports our strategic plan. I firmly believe that Teva is poised to seize today's opportunities and successfully meet our industry's changing dynamics tomorrow."

Revenues by Geographies for the First Quarter 2013¹

Net revenues in the United States in the first quarter were $2.4 billion (50% of total revenues), a decrease of 11% compared to the first quarter of 2012, driven primarily by the decline in Provigil^® sales due to generic competition that began in the second quarter of 2012. In addition, the first quarter of 2012 had significant launches including the generic version of Zyprexa^® and our agreement with Ranbaxy relating to its launch of generic Lipitor^®. This decrease was partially offset by strong revenues from Copaxone^®, Treanda^®, Azilect^® and our respiratory products, and from other generic products that were not sold in the first quarter of 2012.

Net revenues in Europe² in the first quarter were $1.5 billion (30% of total revenues), an increase of 11% compared to the first quarter of 2012, or 10% in local currency terms. Revenues in Europe this quarter benefited from strong OTC and generics sales and stronger revenues from some of our specialty medicines, primarily Copaxone^®, which grew organically and following the take-back of marketing and distribution rights completed in February 2012. In addition, we are continuing to benefit from our strategy and commercial model in Europe to ensure sustainable and profitable growth.

Net revenues in the Rest of the World³ in the first quarter totaled $966 million (20% of total revenues), a decrease of 3% compared to the first quarter of 2012. In local currency terms, ROW revenues increased by 1%. In addition to negative foreign currency effects, mostly in Japan and Latin America, the slight decline in revenues resulted mainly from lower revenues in some Latin American markets and weaker performance in Canada, which was mostly impacted by price reforms across the country. This decrease was partially offset by strong revenues from our OTC business and the continued solid and profitable generic growth in Russia and Israel.

Revenues by Product Lines for the First Quarter 2013

Generic medicines net revenues in the first quarter were $2.3 billion (including API revenues of $186 million), a decrease of 12% compared to $2.6 billion in the first quarter of 2012. Generic revenues comprised 47% of total revenues in the quarter, compared to 51% in the first quarter of 2012. Generic revenues consisted of:

• U.S. revenues of $895 million, a decrease of 27% compared to the first quarter of 2012. The decrease resulted mainly from the absence of royalties related to the sales of the generic equivalent of Lipitor^® under our agreement with Ranbaxy. We also experienced declines in our sales of the generic equivalents of Lexapro^® and Adderall XR^® due to increased competition. These decreases were partially offset by products sold in the first quarter of 2013 that were not sold in the first quarter of 2012, the largest of which was fenofibrate, the generic equivalent of TriCor^®.

• European revenues of $873 million, an increase of 9%, or 8% in local currency terms, compared to the first quarter of 2012. This increase was driven primarily by the increase in generic penetration in France and Italy, successful launches this quarter and the impact of our renegotiations with some of the wholesalers in the region, which negatively impacted our revenues in the first quarter of 2012. The increase in revenues was partially offset by ongoing macro-economic conditions and healthcare reforms in key European markets. Major generic medicines launched during the quarter were: montelukast, ziprasidone, ibandronate sodium and zoledronic acid. We maintained our market positions in major markets.

• ROW revenues of $547 million, a decrease of 8%, or 2% in local currency terms, compared to the first quarter of 2012. The decrease was primarily due to lower revenues in Canada, which were mostly impacted by government-imposed price reforms, and some countries in Latin America, and was partially offset by continued growth in Russia and Israel.

Specialty medicines net revenues in the first quarter were $2.1 billion, flat compared to the first quarter of 2012. Specialty revenues consisted of:

• U.S. revenues of $1.5 billion, a slight decrease of 1% compared to the first quarter of 2012.

• European revenues of $412 million, an increase of 12%, or 11% in local currency terms, compared to the first quarter of 2012.

• ROW revenues of $176 million, a decrease of 16%, or 14% in local currency terms, compared to the first quarter of 2012.

Specialty revenues comprised 42% of total revenues in the quarter, compared to 41% in the first quarter of 2012.

Specialty medicines revenues were flat compared to the first quarter of 2012, despite substantially reduced revenues from Provigil^® due to generic competition that began in the second quarter of 2012, as a result of strong revenues from some of our other specialty medicines, primarily Copaxone^®, Treanda^®, Qvar^® and Azilect^®.

Global revenues recorded by Teva for Copaxone^®, the leading multiple sclerosis therapy in the U.S. and globally, increased 17% in U.S. dollar and local currency terms to approximately $1.1 billion, compared to $0.9 billion in the first quarter of 2012. The increase primarily resulted from volume and price increases in the U.S., where revenues increased 31% to $806 million, and from the successful take-back of marketing and distribution rights in Europe, and was partially offset by lower revenues in Russia due to timing of tenders. Copaxone^® revenues outside the U.S. were $258 million, a decrease of 12% in U.S. dollars and local currency terms.

OTC net revenues in the quarter were $306 million, an increase of 56%, or 58% in local currency terms, compared to $196 million in the first quarter of 2012. This significant increase is due to strong revenues and share growth in key markets in Europe and Eastern Europe, in part related to a strong cough and cold season, from improvement in the performance of the other parts of the business of our joint venture PGT Healthcare, and from an increase in sales of OTC products in the U.S. to The Procter & Gamble Company, pursuant to a manufacturing agreement, which commenced in November 2011.

Other net revenues in the quarter, mostly from the distribution of third-party products in Israel and Hungary, were $212 million compared to $215 million in the first quarter of 2012.

Key Metrics for the first Quarter 2013

Exchange rate differences, primarily the weaker Japanese yen, between this quarter and the first quarter of 2012 reduced revenues by approximately $35 million. However, we recorded lower expenses due to these currency fluctuations and, as a result, changes in exchange rates had a smaller net negative impact of $12 million on our operating income.

Non-GAAP Information This quarter, we had net non-GAAP charges of $330 million, compared to charges of $1.2 billion and $822 million in the third and fourth quarters of 2012, respectively. Accordingly, non-GAAP net income and non-GAAP EPS for the quarter are adjusted to exclude these items:

• Amortization of purchased intangible assets totaling $279 million of which $269 million are included in cost of goods sold and the remaining $10 million in selling and marketing expenses;

• Finance expenses of $94 million, in connection with one-time expenses related to early redemption of senior notes and others;

• Restructuring and acquisition expenses of $43 million, mostly related to the Cephalon acquisition;

• Legal settlements of $27 million;

• Impairment of long-lived assets that amounted to $15 million;

• Costs of $12 million related to regulatory actions taken in facilities; and

• Related tax benefits of $140 million.

Teva believes that excluding such items facilitates investors' understanding of the Company's business. See the attached tables for a reconciliation of U.S. GAAP results to the adjusted non-GAAP figures.

Quarterly non-GAAP operating income of $1.3 billion, down 21% compared to the first quarter of 2012. Quarterly GAAP operating income was $874 million compared to $928 million in the first quarter of 2012.

Non-GAAP gross profit margin was 58.6% in the quarter, compared to 60.9% in the first quarter of 2012. This primarily reflects the loss of exclusivity on Provigil^® and a decreased contribution from the sales of exclusive generic medicines in the U.S. This was offset by higher sales of Copaxone^®. GAAP gross profit margin was 52.8% in the quarter, compared to 51.1% in the first quarter of 2012, which was impacted by higher amortization of purchased intangible assets, inventory step up and costs related to regulatory actions charges.

Net Research & Development (R&D) expenditures in the quarter totaled $329 million, or 6.7% of revenues, compared to $292 million, or 5.7% of revenues, in the first quarter of 2012. Approximately 62% of net R&D expenditures in the first quarter were for specialty medicines, and the remainder was for generic and other R&D. The increase in R&D expenditure reflects our growing and focused efforts to build our pipeline and strengthen it in line with our new strategy.